43 ms·
I think this is a nice piece, but would like to see some discounting for political risks. Saudi Arabia will retain a controlling interest in a firm that is stra
by rsj_hn 9y ago
I think this is a nice piece, but would like to see some discounting for political risks. Saudi Arabia will retain a controlling interest in a firm that is strategically important for many reasons other than turning a profit:
* to provide tax revenues to the Saudi Government
* to provide cheap oil to the Saudi public
* to control the price of oil for political reasons -- e.g. if it wants to reward/punish other nations
* as a symbol of national sovereignty
Moreover, the Saudi Government is in a difficult position needing to placate some extreme forces and competing claims in their nation. It seems difficult to believe that this 5% share is going to prioritized when tough choices need to be made in the future.
That alone would, to me at least, call for a heavy discounting of future cash-flows.
- justinterested 9y agoGood point. What would you consider an appropriate Discount Rate in this case ?
- rsj_hn 9y agoFor me, personally it would be in the ballpark of 50%. I just don't see this regime as being very trustworthy or serious about rolling back the trend of nationalization in the oil sector that has been the dominant feature of this ruling family.
- justinterested 9y agoI tend to kind of agree that a very high discount rate is appropriate, but, I do not see how Saudis will agree to even discussing 30% let alone 50% discount rate. They will rather quietly go to Institutional Investors Pre-IPO and allow them a major buy in share. There is no doubt that Saudis are unreliable and too many risks at play.
- justinterested 9y agoBy the way, I think he has most of what you have stated in it in another post. Just search for " Investor Risks associated with Saudi ARAMCO IPO" in Google. https://goo.gl/QnT6gi https://goo.gl/QnT6gi